A hot topic this year in the scrap metal industry, US President Trump is planning to introduce metal tariffs for imports into the USA. With speculations ranging from a better market to a higher price for consumers, a lot of things that can happen. To try to make sense of all this, we break down what we know, what we don’t know, and what you should know.
What Are Metal Tariffs & What Do They Mean?
A conversation started in February 2018, metal tariffs would affect the cost of trade for countries importing metal products into the USA (with the exception of Canada and Mexico). Metal tariffs mean that any countries bringing in either raw aluminum or steel into the US would be charged a percentage to import it for further production of items. For example, a Chinese company processes steel scrap by having it shipped to their location internationally. During the process of recycling, the steel is melted and reused for newer products or materials. That new material is shipped from China to the USA for further production of items like cars or buildings, the company selling them would be charged a tariff for importing it into the US.
How Could These Metal Tariffs Affect The US?
When these tariffs go into effect, there will be a few things that would impact USA and the scrap metal market. Tariffs like these would do a few things for those that are producing the products, consumers, and also those that process metals in the US.
Companies that need to use the metals from international companies who are getting charged more to import have to adapt. They could accommodate the higher costs by cutting employees, charging higher prices for goods, decreasing their business, or could shop elsewhere for materials. The tariffs may cause a company that needs metals for production to find a domestic processor in the US for their material.
Consumers could feel the effect of the tariffs with higher prices on goods like cars and infrastructure. If companies they buy from continue to import, the prices will go up to make up for the tariffs being paid for.
Metal processors in the US could see this as a good thing and have more companies coming to them domestically for their metals. This could increase production of materials, thus increasing demand. The higher demand in the US could directly affect the scrap prices in the US with local companies looking for more scrap. However, if the prices spike too quickly, there may be an overflow of material which would bring the prices down.
How Could These Metal Tariffs Affect International Trade Partners?
Countries that are big importers of metal into the US could immediately feel the effects from the tariffs with a lower demand from manufacturers in the USA. If domestic manufacturers begin to turn to domestic metal processors more often, the international companies will begin to lose business and value. This can directly affect the stock market on all levels.
Also, in response, some of these countries that import to the US, could turn around and apply similar tariffs to materials like scrap metal or other products being imported into their countries from the US. This could create another controversy of international processors losing money.
How Can Metal Tariffs Affect Scrap Prices?
These proposed metal tariffs will directly affect scrap metal prices and market value for all major commodities in scrap (steel, aluminum, copper). Like mentioned earlier, if US processors are seeking more scrap for processing than scrap prices could go up. But simultaneously, if international tariffs are created for metals like electronics or steel are applied, then the prices could go down too because it’s more costly to move the metals internationally.
What We Know:
Regardless of the order of events happening, we do know that these tariffs will have a direct effect on scrap metal prices. How much and to what degree, cannot be pinpointed at this time.
What We Don’t Know:
We do not know exactly how other countries plan to respond to these tariffs. Their responses can have a direct impact on scrap prices as well.
What You Need To Know:
Like we say every week on our Scrap Price Reports, we suggest that you continue to sell your materials. Scrap prices for all the major metals are strong and steady right now. Stay tuned for updated information on these tariffs by following the iScrap App on Facebook and signing up for our emails.
With the Chinese putting in their own tariffs against the USA for items like airplanes, soybeans, and many other goods it looks to be a bit of a trade war that could be looming. Many think that both the US and the Chinese governments are doing these things but will be sitting down in April or May 2018 to figure out a better method of working together, but we are still in a wait and see mode.
Many people think that there is a small chance that deal will not get done, but in case both countries do not find a solution we may be looking at a very dicey situation overall. This will affect the exporting of insulated copper wire overseas as well as many other metals and could lead to a possible small depression.
We will update you on how this “tariff battle,” will be affecting the scrap markets down the road.
With the US Government making some concessions and temporary holds to other countries before the tariffs went into effect on 5/1, we are waiting to see what will happen from here.
There were some countries that had the tariffs put in, but there are others that are now trying to negotiate with the US to be able to have a fairer deal put into place.
With aluminum prices climbing about 10% since the talk of the tariffs were started we have seen those prices retreat in the last week or so with different pieces of new coming out. Now we have to wait and see what happens from here.
The US and China continue to work on an agreement that is fair for both countries to be able to open up the trading lanes again. They are putting a two week hold on certain tariffs and trying to work out a deal by the middle of June to have a more fair set of rules and guidelines in place for the trading.
This would be an excellent change of scenery and could possibly open up many of the scrap trading options and allow scrap yards to start shipping materials out more quickly and be able to get much higher pricing.
These openings will allow materials like insulated copper wire, sealed units, and electric motors a much clearer opening for shipping out materials.
It looks like China will not be the only one to have these tariffs placed on them as the US has let the European Union know that the tariffs will be applying to them as well. With a 25% tariff on steel and a 10% tariff going to be imposed on aluminum, it looks like the US is extremely serious about how they see the trading picture shaping up.
This implementation of the tariffs has helped domestic steel producers in the short term, but we anticipate that the US will eventually work out agreements with many of its major allies including the European Union and China. Not having deals in place will cause retaliatory effects with some European officials saying that they will impose sanctions on US items like Harley Davidson motorcycles and certain whiskeys.
What is happening right now has been done before, but never to this effect. The potential long-term gains from this tariffs will far outweigh the short-term losses, but having those short-term loses happening never makes one feel good.
Well…it happened. The tariffs are beginning to kick in and the markets are reacting. Since copper hit 4-year highs in the trading Comex two weeks ago we have seen the markets drop about 8% since. With these large market drop,s we have seen scrap yards go on the defensive and drop their prices quickly with fears that they will further drop.
With $50 billion being initiated in tariffs to China and another possibility of more tariffs on 200 billion in goods coming in the coming weeks, we are in for large fluctuations in the copper (and especially the wire markets) in the coming weeks and months until this gets sorted out.
On top of the tariffs with the Chinese, we also have a large quarrel of tariffs with many of our allies like we talked about above getting ready to go into affect as well.
These will be very tumultuous times in the metals markets and we will continue to stay on top of it.
It seems like this is not gong to be going away slowly and we are going to have to get ready to ride the tariff train for a long time. The markets are reacting to more tariffs being put into place and in the last 6 weeks we have now seen copper prices drop 16% ( it was almost 20% after a small rebound), and the price drops are not going to be the only thing that affects people.
The markets are reacting, but a little more of a scary thing is how the low grade markets are going to react going forward with copper trade problems. Copper has been one of the biggest determining factors in the economy for years, and with many of these tariffs affecting most of the overseas copper imports (and exports for that matter), we are going to be in for a rude awakening for a while.
While large companies in the US have begun to report 2018 Quarter 2 numbers and many have had profits rise anywhere from 5-25% year over year, they are concerned about future problems. The markets are going to react in such a way that we do not know what to expect and with the risk of overseas importers not taking material creeping in, we may have a problem on our hands.
Items like electric motors, sealed units, low grade copper bearing items, and other lower grade copper wires will have a very hard time finding homes…as for years the Chinese have taken them in. Now we are going to go through a waiting period that will test the patience of many people and how they will be able to react to the market conditions.